Tesla Might Raise Prices in China Due to Yuan Uncertainty

Tesla might raise prices in China due to yuan-related uncertainty, according to Reuters.

Specific details about the price adjustment haven’t been released yet.

Tesla might raise prices in China due to weakening yuan

On Wednesday, Reuters reported that Tesla (TSLA) might raise prices in China. The company might raise prices in September due to “yuan-related uncertainty.” However, the company hasn’t provided a decision yet. Also, Tesla hasn’t released specific details about the price adjustment.

On Monday, China’s central bank devalued the yuan past seven for the first time in over a decade. The devaluation was in retaliation to President Trump’s new tariffs. The US might levy 10% duties on $300 billion of Chinese imports starting in September. The US officially labeled China as a “currency manipulator.”

More trade tension between the US and China

The tension between the US and China has been escalating. China instructed state-run enterprises to stop buying US agricultural products. However, President Trump assured farmers that he will provide more support as China backs out of agricultural purchases.

Tesla has adjusted its prices in China multiple times due to ongoing trade tensions and tariff changes. In May 2018, Tesla reduced its vehicle prices after China lowered the import tariffs on automobiles. In contrast, Tesla had to increase the prices of its Model S and Model X in China by close to 20% in July 2018.

China’s factory to reduce impact from tariffs and trade wars

Currently, Tesla imports all of the cars it sells in China. However, the company is in the process of building a factory in Shanghai. Tesla broke ground for the factory in July. The company aims to start Model 3 production toward the end of the year. The factory should help Tesla minimize the impact of tariffs and trade war tensions. Lower-end variants of Model 3 will be manufactured domestically. However, the higher-end variants will still be imported from the US. According to Electrek, even the vehicles made in the Chinese factory will have a 15% most-favored-nation tariff. The tariff will still be much lower than up to 40% tariffs on US vehicles in China.

China is Tesla’s most important market outside the US. In the first half of 2019, Tesla reported a surge of 42% in Chinese revenues. Investors will watch Tesla’s moves in China.

Trade escalation and other automakers

The trade escalation and weaker yuan will likely impact other automakers. The automakers that make the cars outside the US and ship them to the US will be hard hit. The companies include BMW (BMW) and Daimler AG. After ratcheting trade tensions and the yuan devaluation, NIO (NIO) fell about 10% on Monday. The slowing Chinese economy is also weighing on electric vehicle demand, which impacts NIO. The iShares China Large-Cap ETF (FXI) has lost 0.6% year-to-date as of Wednesday compared to the S&P 500’s (SPY) gain of 15.2%.